On trying to pay the right tax – a fairy tale

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06 Jun 14
On trying to pay the right tax – a fairy tale

MEMBER 67 writes:

“Once upon a time, a mature tax consolidated tax group was taken over by another mature tax consolidated group. As sometimes happens, that takeover was immediately followed by another takeover. This time the acquirer was an immature tax consolidated group. That is, A buys B, then C buys A. Sounds straightforward, right?

Well boys and girls, the tax agent, in trying to be proactive and give the ‘right’ advice to the original small group of companies, read the ATO’s guidance on what happens with PAYG income tax instalments after the takeovers. The tax agent decided that the ATO’s guidance was clear and therefore, each member of the original group should now be paying individual instalments, until the new ultimate head company is issued with its first consolidated instalment rate in about 18 months’ time.

The tax agent told the public officer this, and even quoted from the ATO’s guidance: ‘if a leaving entity joins another group during that group’s formation period…, the entity pays its own PAYG instalments until the start of the quarter in which the head company of the new group is given a consolidated instalment rate’. There are no provisos or exceptions to this in the ATO’s guidance. And given the legislation on the issue is virtually unintelligible, one would think that the ATO’s guidance could be relied upon. AND that the ATO would actually follow its own guidance.

Now children, the ATO only issued an instalment rate and IAS to ONE subsidiary member of the original group. That was done in accordance with the above quoted ATO guidance. So, tick for one company! Yippee, thought the tax agent! But hang on, what about the other seven companies in the original group? Hmm, the tax agent thought, I will just follow up the ATO, quote the ATO’s own guidance, and get instalment rates and IASs issued to the other subsidiaries. How hard can that be?

Fast forward six weeks, 10 hours of tax agent time in chasing and chasing this up with the ATO, through various ATO officers (all in the same specialist area), and where did the tax agent end up? Well, the ATO officers were not interested in following the ATO’s own guidance. Nor in even being referred to the ATO’s own guidance. The matter has been ‘resolved’ with (wait for it), a letter that was apparently issued the day after the tax agent first called the ATO about the matter. The letter was sent to another member of the group, not the tax agent’s client, and the ATO did not mention this letter to the tax agent. Needless to say, the ATO letter hasn’t followed the ATO’s own guidance.

But the tax agent is worn out and has given up. Why start another round of ‘my client just wants to pay the right tax at the right time’ when you get thwarted at every turn? The tax agent will now just tell the client to track down this letter and do what it says. And the tax agent now has to try to get the client to pay for some of the agent’s time that was spent trying to get the right result, which was in fact never achieved. The tax agent is going to try to convince the client that a compensation application should be submitted to the ATO (even though the time spent on preparing said application will not be compensable). On the (possibly mistaken) assumption that the ATO will agree there was defective administration, the tax agent hopes to recover at least some of the time spent.

The moral of the story, kiddies, is that trying to ‘do good’ doesn’t always pay. But then, all you other tax agents out there already know that, don’t you?”